From honing in on an investment area to house viewings, first-time buying is a bit of a minefield. In order to secure your first home, the likelihood is that you’ll need a mortgage. But the myths and misconceptions surrounding this type of home-buying are commonplace, meaning that the process often seems more daunting than it actually is. Speaking to Aaron Strutt at Trinity Financial, we demystify some of the jargon surrounding mortgages, and bust the common myths around first-time buying.
For many people in their 20s and 30s, just getting onto the property ladder seems like a distant prospect, never mind finding a dream home. While the deposit is often regarded as the biggest hurdle, the prospect of securing a mortgage can also feel difficult. However, most mortgage lenders these days will offer a loan on as much as 95% of the property value, which means just a 5% deposit is needed. A mortgage calculator will give you a rough estimate of how big a mortgage you’re likely to secure, based on your income. Of course, there are other costs to consider such as stamp duty and conveyancing, but even with these, buyers can rest assured they don’t need a casual six figures spare to secure their first home. And of course, there’s the government’s Help to Buy scheme; a brilliant way of getting onto that first rung. The Shared Ownership scheme allows a buyer to buy a share of a property and pay rent on the rest, meaning that a smaller deposit is needed. With a Help to Buy Equity Loan you can borrow between 15% and 40% from the government towards the cost of a new-build home, depending on where you live. A Help to Buy: ISA pays first-time buyers a government bonus for any savings they’re able to put towards home-buying.
In most cases you will need a deposit of at least 5% to buy a property, however there are a few 100% mortgages knocking about, with which buyers can borrow a loan for the entire cost of the property. These are pretty rare though and require a guarantor to help secure the property. Someone will need to put their cash into a linked savings account attached to the mortgage or have a financial charge put on their property as security for the loan. Many first-time buyers prefer to have a 5% deposit so they can access a more standard mortgage.
Not necessarily. The interest rate you’ll pay is just one of several variables influencing the overall cost of a mortgage. Whether the arrangement is a tracker mortgage or a fixed-rate mortgage will determine whether your rate will change at all. A fixed-rate mortgage guarantees that your interest rate will stay the same for a set period of time, and could be more suitable for those finding their feet in the market. Many mortgages carry fees ranging from £100 to over £1,000, making a big difference to the overall cost of the deal. Some have higher interest rates but offer cash when you take out the mortgage, which can be tempting, but do weigh up whether it’s worth it in the long-run. If you’re looking for a relatively small mortgage then it doesn’t always make sense to take the lowest rates as they often have higher arrangement fees. Our brokers used their systems to work out if it is worth paying a fee or opting for a higher rate with a smaller or even no fee. The best buy rates are incredibly cheap at the moment with two-year fixes and tracker rates priced at around 1%. Five-year fixed rates are also very well priced with the cheapest deal below 1.5%.
Your income only forms part of the lender’s decision making process. It used to be the case that your income was just multiplied by up to five times to work out your maximum mortgage size. These days it’s more complicated, with deposit level, affordability stress testing and credit history also being key components. In layman’s terms, this just means a series of extra checks to see that you can afford the repayments. Be prepared for the mortgage interview which have also got a bit harder. As well as income and utility bills - as was the norm - you might find that they enquire about anything from gym memberships and insurance to school fees, entertainment costs, eating out habits and the weekly shop. It’s not that they’re judging you for eating fillet steak and it shouldn’t be taken as scaremongering, lenders will just want to see the bigger picture.
It’s true that getting a mortgage can be difficult if you’ve got a bad credit history, but it’s not impossible. There are lenders who offer mortgage deals specifically for people in this situation. Some will accept CCJs and debt management plans,but the rates are more expensive. A recent report by Pepper Money estimates that as many as 1.26m people in the UK who have experienced adverse credit in the last three years are looking to move home/buy a home in the next 12 months. It is possible to get a mortgage if you have a poor credit rating and potentially with one of the bigger mortgage providers, but it will depend on just how bad your credit is and how many missed payments you have. But do note that there is a difference between a bad credit history and no rating at all. For anyone that falls into the latter camp, it’s better to take the time to build up a credit score, rather than opting for a bad credit mortgage, as these generally come with much higher rates.
There are limited options for those on a zero hours contract to get a mortgage but by no means is it impossible. With the rise in freelance, flexible and contract working in the UK, there are a number of lenders offering mortgages to people on all sorts of working contracts. There are at least 20 lenders offering zero-hour contract mortgages and some of the biggest banks have recently come into this part of the market. Today, many lenders will take a more personal approach when it comes to assessing people’s employment situation, but again, it all comes down to proof of affordability.
If you're looking for a mortgage or would like some advice on financing your first home contact Woodland Ltd. At info@woodlandltd.co.uk Tel: 020 8554 5544.
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